Quite a lot of investors want NVIDIA (NASDAQ:NVDA) to simply drop its mobile chip business altogether to focus on the opportunities afforded to it thanks to discrete GPUs. While the argument could certainly be made for those with a shorter-time horizon (this would immediately relieve significant pressure on the EPS line), it is clear that in order for the company to grow it needs to participate across all segments of computing where graphics performance is important. Fortunately for NVIDIA, that's just about every segment of client computing.
Why mobile is important
It's not difficult to understand why mobile computing is so important – people love their mobile phones and tablets. These devices offer all-day battery life, are incredibly portable, and offer very rich application ecosystems (well, iOS and Android do – Windows 8.1 has a ways to go). While it's not likely that tablets and smartphones replace traditional notebooks and desktops, it is clear that these devices will be the high-volume growth portions of the computing market going forward. There will be more tablets sold than PCs within the next year or so (smartphones already significantly outnumber PCs). This market is large and important.
NVIDIA's Android opportunity
Thanks to the rise of Google's Android as the world's most popular client operating system (it's nearly free – save for the royalties that many Android OEMs need to pay Microsoft), the requirement of being able to build a chip compatible with Intel's (NASDAQ:INTC) X86 instruction set architecture went right out the window. ARM (NASDAQ:ARMH) – the most ubiquitous instruction set architecture in mobile computing today – is happy to license either processor cores or a license to build a custom processor core to just about anybody willing to pay up. The floodgates are now open and there will be plenty of competition in the chip space before the inevitable consolidation happens.
Now, it is this Fool's bet that NVIDIA will be one of the "last men standing" in the computing market. Why? Well, simply look at the "big three" in merchant tablet silicon today – Qualcomm (NASDAQ:QCOM), Intel, and NVIDIA. Qualcomm's forte is cellular radios and connectivity (and it can design a mean CPU and GPU, to boot). Intel's strength is in CPU design and manufacturing technology/scale (although it's finally getting good at the GPU and cellular blocks). And, finally, NVIDIA is the world leader in GPUs (and should be preparing something nice with its Project Denver CPU) and has already built a carrier-certified LTE modem.
NVIDIA's products are competitive, Tegra 5 should be early
NVIDIA's Tegra 4, albeit slightly late, turned out to be a competitive product on both CPU performance as well as graphics performance, as evidenced by the recent reviews of NVIDIA's own Tegra Note tablet. Now, keep in mind that this part was a stock ARM Cortex A15 paired with a "stopgap" GPU solution. NVIDIA has made it known that Tegra 4 will have a very short life span as it is replaced with an updated edition that sports a scaled-down version of NVIDIA's "Kepler" GPU found in its top-notch graphics cards.
This will likely give NVIDIA a significant edge on both Intel's and Qualcomm's GPU solutions, particularly if this new Tegra makes it to market before the next generation chips from those two players. It is not inconceivable to see NVIDIA win the next generation Nexus 7 (the current Tegra 4 is already significantly faster than the Qualcomm Snapdragon 600 in the 2013 Nexus 7), and it is likely that the company has a real shot at winning the Amazon Kindle Fire HDX slots.
Foolish bottom line
NVIDIA already runs a great business with its GPUs – it's the world leader at that. However, for growth the company needs to succeed with Tegra. It seems that the company has all of the right ingredients to really "win" in this space, and with management making bold moves like introducing the Tegra Note and its handheld SHIELD gaming device, it's clear that creativity is this company's strong suit. If all goes as planned, NVIDIA shares should trade much higher over the next year – and likely beyond, too.